Interlink between factor and product markets: Opportunity for the future of Indian agriculture

Farm households' choice of where to sell the product (marketing channel) is endogenous to the decision of where to buy inputs (selection of an input source). Using the latest National Sample Survey Office (NSSO) Situation Assessment Survey data, and endogenous switching probit regression (ESPR), this study evaluates the impact of input market selection on the choice of (formal) product market. Compared to farm households selling to informal markets, those selling to formal product markets had significantly higher profit per unit of land. Households buying inputs from formal sources like cooperatives and government agencies were 50% more likely to choose formal channels.